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December 2021 (published: 08.12.2021)
Number 4(47)
Home > Issue > Modeling the valuation of a business with a non-zero level of confidence in the
framework of a revenue approach based on income capitalization
Lisitsa M.I.
The subject of the study is both probabilistic and statistical models for identifying (and with the possibility of maximizing) a non-zero level of reliability (trust) of the source data, and financial models used to assess the value of a business within the framework of the income capitalization method. At the same time, the work aims to substantiate the modeling option stated in the topic within the framework of the profitable approach to business value assessment that is the object of research. Fundamentally the research is based on the method of synthesis of mathematical statistics and probability theory tools with a discounted cash flow model transformed for use over an indefinite time interval. The proposed version of the business value assessment is based on the study of the reliability of the calculation: 1) the expected annual net profit; 2) the annual rate of required return on equity, as well as the annual rate of required return on invested capital. The reliability justification involves testing the hypothesis of a non-random connection in time between: 1) net profit; 2) actual return on equity; 3) actual return on the b-asset-its role can be performed by the stock exchange index on government bonds; 4) actual return on the m-asset – its role can be performed by the stock exchange index on shares; 5) actual return on invested capital. The presented approach can be in demand by commercial organizations for which the business value assessment is necessary due to legislative provisions, as well as by appraisers and/or experts (quantitative analysts) who rely on statistical methods of forming the evaluation result and making it stable in the long term, of course, if deviations are inevitable in individual time periods.
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Keywords: profitable approach to assessing the value of a business, method of capitalization of income, annual rate of required return on equity, annual rate of required return on invested capital, value of the object of evaluation, expected annual net profit
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
UDC 336.051
Modeling the valuation of a business with a non-zero level of confidence in the
framework of a revenue approach based on income capitalization
The subject of the study is both probabilistic and statistical models for identifying (and with the possibility of maximizing) a non-zero level of reliability (trust) of the source data, and financial models used to assess the value of a business within the framework of the income capitalization method. At the same time, the work aims to substantiate the modeling option stated in the topic within the framework of the profitable approach to business value assessment that is the object of research. Fundamentally the research is based on the method of synthesis of mathematical statistics and probability theory tools with a discounted cash flow model transformed for use over an indefinite time interval. The proposed version of the business value assessment is based on the study of the reliability of the calculation: 1) the expected annual net profit; 2) the annual rate of required return on equity, as well as the annual rate of required return on invested capital. The reliability justification involves testing the hypothesis of a non-random connection in time between: 1) net profit; 2) actual return on equity; 3) actual return on the b-asset-its role can be performed by the stock exchange index on government bonds; 4) actual return on the m-asset – its role can be performed by the stock exchange index on shares; 5) actual return on invested capital. The presented approach can be in demand by commercial organizations for which the business value assessment is necessary due to legislative provisions, as well as by appraisers and/or experts (quantitative analysts) who rely on statistical methods of forming the evaluation result and making it stable in the long term, of course, if deviations are inevitable in individual time periods.
Read the full article
Keywords: profitable approach to assessing the value of a business, method of capitalization of income, annual rate of required return on equity, annual rate of required return on invested capital, value of the object of evaluation, expected annual net profit
DOI 10.17586/2310-1172-2021-14-4-51-65